The stock market is like a roller coaster. The Euro Zone may break up. A largely jobless recovery persists. Safe havens like money-market funds and treasury bonds have interest rates near zero. What’s an investor to do?

If you are the Washington State Investment Board, you do what you have always done: Look to the long-term return and don’t get carried away by short-term shifts and changes. That approach has worked for years, giving Washington state one of the most secure public pension systems in the country.

Many pension funds in other states are in terrible shape, and they were in bad shape even before the late-2008 crash in investments. A study by the Pew Center said there was a $1 trillion gap in early 2008 between the money states had set aside to pay for employees' retirement benefits and the estimated cost of those benefits. And that gap — $2.35 trillion was set aside to pay for benefits costing $3.35 trillion — is no doubt much larger now because of the freefall in pension-fund values in the second half of 2008 and early 2009.

Washington got good marks in the study. In 2000, just over half the states had fully funded pension systems, the study said, but by 2008, Washington was one of only four states which could make that claim. “Washington has generally kept a careful eye on the health of its many pension plans, which are well funded on an aggregate basis,” Pew reported.

The state does have its own problems, but they are limited to unfunded liabilities in two pension plans that were closed in the 1970s. That liability now totals about $3 billion.

The State Investment Board manages investments for 17 retirement plans for public employees, teachers, school employees, law enforcement officers, firefighters and judges. In addition, the Board manages investments for 22 public funds that support or benefit industrial insurance, colleges and universities, wildlife protection, and families with members who have developmental disabilities.

Fifteen of those are fully funded. The Investment Board's return on its investments still is above the 8 percent long-term target set by the Legislature, although losses over the past few years have pushed that number closer to the 8 percent mark. The long-term performance of the funds stands now at about 8.43 percent.

“We are long-term horizon investors,” said Theresa Whitmarsh, executive director of the Investment Board. “We have been through this before. We have the luxury of waiting out the market. We do not think it is prudent to react to short-term shifts. We do not try to follow the market.”

State pension funds, like almost all investments, have taken a severe hit from plummeting equity markets, a depression in real estate markets and the continuing side effects of this ongoing Great Recession.

From peak to trough, a very broad measure of the Washington investment funds showed losses of more than 30 percent of value — from a high of $67.7 billion in October 2007 to a low of $45.4 billion in March 2009. The many funds managed by the board have gained back some losses as stock markets and some other investments have recovered. At the end of March this year, the broad measure stood at about $55 billion.

While the current state of pension investments is holding up, there continues to be a nagging problem with the two funds closed in the 1970s. Those two cover older teachers and public employees — the Teachers’ Retirement System Plan 1 and the Public Employees Retirement Plan 1 — are they are underfunded by 77 percent and 72 percent respectively, according to the state.

“These are obligations, real debts,” said State Treasurer Jim McIntire.

Pension funds, whether state or private, operate on a relatively simple principle. Investment returns and interest income provide enough funds to cover the current payments to retirees. The problem with the two funds in question is the worry that investment returns will not cover those obligations in the future and the state will be forced to tap the general fund. With the state already facing huge deficits, tapping the general fund is the last thing anyone wants to do.

Sen. Lisa Brown (D-Spokane), Senate majority leader, said she believes the Treasurer is “overreacting.” But she does not dismiss the problem. “We have a challenge ahead,” she said. “But we are also ahead of most other states.” Senator Brown said that “this is not the time for pension enhancements” although there are always issues on the margin that should be considered.

The 2010 Legislature, for example, approved a measure to increase benefits for the families of law enforcement personnel killed in the line of duty. It allows officers’ survivors to collect lifetime pensions regardless of how long their loved ones worked. However, it did not contain a proposed provision that would have allowed spouses to keep collecting workers’ compensation benefits even if they remarried.

The health of state pension plans around the country remains an issue that often falls under the radar of public attention. Just last week, the Kellogg School of Management at Northwestern University released a study showing that public workers and state and federal officials alike have cause for serious concern about pensions.

Data showed that state pensions will place “tremendous pressure on the federal government to bail out financially insolvent states at a price tag likely to match or exceed the recent bailout of the U.S. financial system.”

Some states see the problem and are trying a risky approach: They are seeking higher returns for their pension funds, to make up for ground lost in the last couple of years and to pay all the benefits promised to present and future retirees. Higher returns come with more risk.

Whitmarsh admits that “these are challenging times” for investors in general and for pension funds in particular. But she also said it is not time to change any of the tried and true investment philosophies that have worked for this state in the past. For example, the State Investment Board steered clear of housing investments such as the sub-prime mortgage market and exotic investments like credit default swaps that tanked so badly.

Whitmarsh credits her team at the Investment Board. Fixed income investments — mostly bonds — are managed internally with experts doing their own fundamental analysis and credit analysis. “They made some very good decisions,” Whitmarsh said.

Still, times have changed. Liz Mendizabal, the board’s public affairs director, said she is reluctant to go to New York again. “Last time I was there it was the day Lehman Brothers collapsed,” she said.